An LLC is pretty easy but another option is to simply insure it with an umbrella policy.

It can be years of nothing but the easy life collecting rents, no turnover, sipping rum fruit drinks with bamboo umbrellas on tropical islands.... and then BAM!

I think this is where you contact your landlord and umbrella insurance companies and find out if it is a covered claim, as they may be much more knowledgeable about how to handle this situation than you are.  

All money collected in the form of fees or deposits, all fall under one umbrella rule for security deposit money.  

Lawsuits - good management company + umbrella liabilityHigh Vacancy - conservative assumptions in original analysis + cash reservesWhat other risks should I be cognizant of?  

If in your name, be sure you have a good umbrella insurance policy.

An umbrella insurance policy covers just about everything you'd need on that front.

Many on this site also like to overlay that with an umbrella policy (topic for same firm or pro).

So the suspicion is that this woman works under the umbrella of her boyfriend (both self employed real estate agents) and the paperwork was likely fabricated.   

Even if you have hired contractors to do the work, house is in a LLC, and an umbrella policy in place I bet it will make you nervous thinking all that equity could be up for grabs if an attorney can prove negligence.